As the macro economy adjusts from the short run to the long run,
A)wages and other factor prices adjust to close output gaps.
B)potential output is adjusting to close inflationary or recessionary gaps.
C)wages and other factor prices remain constant.
D)aggregate demand shocks cause deviations from potential output.
E)aggregate supply shocks cause deviations from potential output.

Question

Quizplus · Accepted Answer

In the long run, wages and other factor prices adjust to eliminate output gaps, bringing the economy back to its potential output level.

As the Macro Economy Adjusts from the Short Run to the Long